Russian tech start-ups abandon Moscow

May 24, 2014
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Yoanna Gouchtchina works with project manager Anastacia Kononova at their Moscow offices. Gouchtchina plans to move her tech start-up ZeeRabbit to Berlin because of growing political and regulatory restraints in Russia. / IGOR FINOSHKIN

by Oren Dorell, USA TODAY

by Oren Dorell, USA TODAY

Yoanna Gouchtchina hoped to be part of a new modern Russia when she went home with her American education, computer skills and plans to help foreign businesses get going in Moscow.

Now the CEO of her own tech start-up, Gouchtchina is joining a wave of small and large businesses pulling out or reducing their presence in Russia. Western sanctions over Russia's invasion of Crimea and Russian efforts to insulate the country against economic warfare make doing business in Russia too risky for a globally oriented company like hers, she says.

"I was prepared for it but postponed it and put it off until the Russian invasion of Crimea," said Gouchtchina, who is moving her company, ZeeRabbit, to Berlin this summer. "Right now it feels like just the beginning of the end of those years where we were building the Russian economy. Now everything is kind of sliding back."

Andre Eggert, a managing partner at Berlin tech law firm LACORE Rechtsanwälte, says Gouchtchina is one of 10 Russian tech entrepreneurs who turned to the firm for moving help in the past three months. While the number is small, "The fact that there were none before - we thought it was important," Eggert says.

"Most of them are hoping for additional finance rounds with U.S. and Western European investors, which will not be happening anymore if sanctions or tensions between Russia and the West become more severe," he says.

And these tech companies' employees, mostly young educated and single, Eggert says, want a freer environment to live in, like Berlin, Silicon Valley or Tel Aviv.

The small tech companies are leaving the country together with an projected $150 billion in cash expected to flee Russia this year, while large U.S. manufacturers are cutting back or quitting the Russian market, says Russia analyst Ariel Cohen of the Heritage Foundation.

The Russian central bank last month said $63.7 billion left Russia in the first quarter, equal to all capital lost in 2013. The World Bank estimates this year's total could reach $150 billion. U.S. automakers GM and Ford, which were doing well in Russia's underserved auto market, decided this year to slow down or stop some production lines "because of political risk," Cohen said. Companies leave because of corruption, but the worsening economy is another factor. "The economy is projected to slow down or go into recession. "Consumer income is dropping; consumer credit is dropping. So people will be buying less, including American cars," he said.

Economist Clifford Gaddy of the Brookings Institution says recent confrontation with the West over Crimea and what the State Department says is Russian meddling in eastern Ukraine has created a new sense of "the Russian nation under assault."

The USA and Europe implemented sanctions against about 30 Russian individuals and dozens of companies. The sanctions forced Visa and MasterCard to stop doing business with four sanctioned Russian banks, and the credit giants may leave Russia altogether. That would be a major blow to Russian companies with Western customers, Gaddy said.

The Russian government has responded like a country at war, he said, "taking precautions to prevent the enemy from weakening the country through free media," launching a campaign to find local sources for once-imported goods, and announcing plans for a new Russian credit system to replace the American credit companies.

So far, so-called "import substitution" is having the greatest impact, especially in strategic sectors like the military which has been ordered to stop importing machines, equipment and components from the West and find domestic suppliers, Gaddy said. While some Russian entrepreneurs will gain new business, they "will be less connected to the global economy than before," he said.

Putin also signed recent law requiring Internet sites with more than 3,000 hits a day to register and store their data on Russian servers rather than abroad. That move caused a stir because it "cuts into freedom of speech," Gouchtchina said.

People in her industry avoided keeping their data in Russia before, but the government's new effort to exert control over e-commerce and electronic transfers "is really making people nervous and looking for places to move their teams," she said.

Gouchtchina is a graduate of University of New Mexico in Albuquerque.

ZeeRabbit provides software to game developers that rewards gamers' play time with virtual currency that can be redeemed for digital and physical rewards and coupons.

Russian officials may be thinking they can operate without being part of the global economy, but "it feels like going back, after 30 years, to where we were in the Soviet Union," she said. "People always hope for the best. I don't hope for the best anymore. It's not like tomorrow the curtain will fall, but the sooner we leave the better."